Today’s Currency Headlines
UK government scandals threaten smooth Brexit talks, subsequently pushing Pound to Euro (GBP/EUR), Pound to US Dollar (GBP/USD) rates lower.
GBP/USD exchange rate down -70 pips as political instability weighs on Sterling.
RBNZ holds rates, brings forward hike forecasts – Pound to New Zealand Dollar (GBP/NZD) exchange rate tumbles over -200 pips.
Updated: Hopes of Accelerated Brexit Talks to be Shattered by Government Instability?
Sterling is registering further losses this morning as the recent instability of the UK government looks set to hinder the latest round of Brexit negotiations.
This comes as Theresa May faces a second cabinet reshuffle in a week, after Priti Patel resigned as international development secretary yesterday as it emerged she held numerous unauthorised meetings with Israeli officials.
Markets fear that apparent weakness at the top of the UK government may hamper attempts by both sides to speed up the pace of Brexit talks, with one European Leader reported to have told The Times that ‘the weakness of Theresa May makes negotiations very difficult.’
Pound Sterling to Euro, US Dollar Exchange Rates Sink on Political Scandals
The recent rebound in Pound Sterling (GBP) exchange rates ended yesterday as a string of scandals weighed on UK sentiment.
Having put in its worst daily performance since the week of the Brexit vote last Thursday (when the Bank of England raised rates but signalled only two more rate hikes were likely over the next three years), Sterling managed to claw back some of its losses over the last few days. However, political concerns came back into play yesterday and demand for the UK currency plummeted.
Traders were concerned by a string of scandals that could threaten to bring down Prime Minister Theresa May’s government.
Having seen defence secretary Michael Fallon resign last week over allegations of sexual harassment, May faced growing pressure to remove other members of her cabinet.
Foreign secretary Boris Johnson has faced calls for the sack following a statement he made regarding a British-Iranian woman who is being held in a prison in Iran.
Johnson said Nazanin Zaghari-Ratcliffe was teaching journalism in Iran when she was arrested in 2016 (whereas Zaghari-Ratcliffe maintains she was simply visiting family).
The Iranian courts have cited Johnson’s statement as new evidence in the case and Zaghari-Ratcliffe’s family fear the foreign secretary’s blunder could lead to a longer sentence.
International development secretary Priti Patel also found herself in hot water after it was revealed that she had held several unauthorized meetings with Israeli officials. Patel subsequently resigned but the affair could yet spell more trouble for Theresa May’s fragile government.
The latest scandals negatively impacted demand for the Pound because they were seen to increase the chances of a leadership challenge, and potentially new general elections, that would almost certainly disrupt the complicated Brexit process.
Pound to Euro (GBP/EUR) Exchange Rate Softens Ahead of Latest Brexit Talks
The Pound to Euro (GBP/EUR) exchange rate depreciated by around -50 pips yesterday and Sterling could suffer further losses if scandal-hit UK Prime Minister Theresa May comes under more pressure in the coming days.
Brexit talks are due to restart today and any setbacks could also apply pressure on the Pound.
Some leaked reports suggest there is a group of EU officials who are planning to delay any progress in an attempt to trigger UK firms’ hard Brexit contingency plans, which they believe could force the UK to offer a substantial divorce settlement to avoid a huge drop in business investment.
Other leaks suggest Britain may be allowed to begin discussing the proposed transitional deal before an explicit divorce bill figure has been agreed.
Though unlikely, unexpected progress in the negotiations could provide the impetus for a rally in GBP/EUR.
Political Scandals Weigh on Pound to US Dollar (GBP/USD) Exchange Rate
The Pound slumped by around -70 pips against the US Dollar yesterday as political scandals weighed on demand for Sterling.
The US Dollar, meanwhile, maintained broad strength across the board as technical patterns mixed with robust expectations of a December Federal Reserve rate hike to bolster the ‘Greenback’s’ appeal.
GBP/USD remains around 100 pips above significant psychological support, meaning there is potential for Sterling to slide over the next few days if British political pressures continue to mount.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Slips as Political Instability Weighs on Sterling
The Pound to Canadian Dollar (GBP/CAD) exchange rate suffered losses of around -140 pips yesterday.
While a softening of Bank of Canada rate hike expectations is clearly holding the Canadian Dollar back, a recent spike in oil prices to the highest level in two years is having a positive impact on the commodity-correlated currency.
Negative UK sentiment, due to the latest string of scandals, threatens to mute demand for Sterling over the next few days.
RBA’s Friday Forecasts Could Influence Pound to Australian Dollar (GBP/AUD) Exchange Rate
The Pound to Australian Dollar exchange rate tumbled by around -130 pips yesterday as demand for the UK currency softened following a string of scandals that threaten to undermine Prime Minister Theresa May.
The ‘Aussie’ Dollar has the potential to press ahead further if Friday’s inflation and growth forecasts from the Reserve Bank of Australia point towards stronger economic output in 2018.
If the RBA were to raise its forecasts, the Australian Dollar would likely rally on increased rate hike bets.
On the other hand the ‘Aussie’ could suffer if soft forecasts combine with sliding iron ore prices to reduce the commodity-sensitive currency’s appeal.
Pound to New Zealand Dollar Exchange Rate Down -200 Pips as RBNZ Brings Forward Rate Hike Forecasts
Sterling declined against the New Zealand Dollar by around -130 pips during the London session yesterday as political concerns dogged the UK currency.
Demand for the ‘Kiwi’ increased further during the evening following the Reserve Bank of New Zealand’s latest policy announcement.
The RBNZ left rates on hold at 1.75%, as expected, and noted that ‘monetary policy will remain accommodative for a considerable period’. However, Acting Governor Grant Spencer also said that inflation was likely to hit the 2.0% target much sooner than previously expected and brought forward the bank’s forecast for the next rate hike to the second quarter of 2019 from the third. This bolstered the appeal of the ‘Kiwi’ Dollar.
Data Released Today
09:00 EUR ECB Publishes Economic Bulletin